Contract Farming and Food Parks in India

A
BRIEF REPORT

ON

CONTRACT FARMING AND FOOD PARKS

August 2013

REPORT ON CONTRACT FARMING AND FOOD PARKS IN INDIA

Private & Confidential Page 2 of 18
1. CONTRACT FARMING

1.1 An Overview

Contract farming: an arrangement whereby farmers enter into agreements, both short term
and long term, with industries to cultivate/produce the industries requirements for agriculture,
horticulture, floriculture, poultry and dairy products.

Punjab government has decided to promote durum wheat via contract farming to give a
second push to the green revolution. Similarly, while Karnataka has announced the concept in
its industrial policy for the agro-processing sector, Tamil Nadu has already prepared contract
farming legislation to be implemented in the state. Apart from elaborating on the concept and
application of contract farming, the workshop will cover issues such as new opportunities
under the WTO regime, legal areas involved, government support and incentives and latest
research and development in related areas. Industries involved in contract farming will also
share their experience.

In the last decade, food processors in the country witnessed considerable growth in terms of
production capacities. This has brought along many problems and one of them was related to
procurement of quality raw materials for processing. A substantial number of farmers in India
belong to the small and marginal category and this has added to the problem.

Processing firms face several challenges pertaining to supply chain such as high cost, lack of
adequate availability, poor quality, and timeliness, among others. However, with the rise in
exports and the entry of many domestic and multinational food processors, after the opening
up of the Indian economy, contract farming, which was not so popular earlier, has become
one of the preferred modes for raw material production and procurement, thus strengthening
the food supply chain.

1.2 Strategizing The Concept

Contract farming is essentially defined as an agreement between a farmer and company for
production and supply of agricultural/horticultural produce at a predetermined price.

The basis of the relationship between the parties is a commitment on the part of the farmer to
provide a specific commodity in quantity and quality standards determined by the purchaser
and an undertaking by the sponsor to support the farmers production activities as well as
purchase the commodity. Many companies in India have adopted the contract farming
strategy to ensure effective supply chain management.

The companies often meet with farmers to introduce them to the best agronomy practices. So
be it modern planting techniques, water-efficient irrigation systems, objective methods of
fertiliser and pesticide applications, the companies spelling agronomists would work closely
with farmers, which translated into tangible improvements both in terms of crop quality and
yield. The results were quite apparent.


Further, it is seen that companies in India are mainly embracing contract farming to support
their export demands where they have to ensure products with certain specifications.

Further, the other concern is the quantity of fertiliser used. This is because, often, even after
washing the vegetables and fruits, some residue are left behind, which is not acceptable in
several countries. So, in order to meet export quality requirements and standards, the contract
farming for okra and other leafy vegetables initiated.

1.3 Overcoming The Challenges

Contract farming is not free from certain limitations and challenges. The biggest challenge is
pertaining to providing quality seeds to farmers and ensuring that the seeds are used for the
production and not sold by the farmers as it happens in many cases. Moreover, it is necessary
to enlighten the farmers about proper cultivation, sowing methods, etc.

On the farmers side also, there are certain problems. Farmers are highly skeptical about the
processors, i.e. whether the companies will buy their product or not and will they have to bear
losses when the price shoots up.

In order to deal with such challenges, companies are taking several measures. Firstly, they
select the land, taking into account the climate and soil. They also monitor the various
processes at the farm level. Further, if the prices are increasing beyond certain limits, then they
too increase the price offered to farmers.

In order to be fair to the farmers and maintain transparency, most of the companies discusses
price aspects of the produce every year before planting. It is a mutually agreed decision
between the farmers and the companies, and is also dependent on prevailing market prices.
This sustained investment, both in monetary terms as well as the time spent, resulted in a
winwin partnership for farmers and the company.

1.4 State and Contract Farming matrix

State/ Institution Nomenclature of the
Scheme
Short Details of
the Scheme
Benefit to Farmers/Benefit
to Private House
States/Districts
where it is being
implemented
1. Assam
Hindustan Paper
Mill

Area Development
Scheme

The Scheme
envisages
cultivation of
Bamboo on
wastelands.
Farmers would be benefited
in terms of production and
income
8 Districts of Assam
Cachar,
Hailakandi,
Karimganj, Nagaon,
Kamrup, Morigaon,
Udalguri and
Darrang
2. Bihar
1. Sarvodaya
Krishak Sewa
Swablambi
Sahkari Samiti
Seed production Minimum Rs. 100
per quintal

Rs. 100 per quintal to Samiti

Ara district

2. Doon Valley
through Aditya
Kumar,
entrepreneur
Basmati rice Assured
procurement
Crop grown through organic
farming methods prescribed
by it.
Munger district
3. Chhatisgarh
MSSL Mahindra
Krishi Vihars

Supply of quality
inputs, technical
guidance, buy back
of produce at pre
decided price.
Assured availability of quality
produce in required
quantities at pre decided
rates
Chhatisgarh
4. Himachal Pradesh
Himalayan
International
Limited
3 herbs being
cultivated

Assured purchase
of crop by the
company at a
prefixed price
Assured supply Paona block of
Solan district
5. Karnataka
1. M/s Bharati
Associates
Gherkin Processing Assured market,
good price, 1000
farmers benefited.
Assured supply of quality
produce
Hassan, Karnataka
2. M/s Sai Agro
Tech
Kolar, Karnataka
6. Madhya Pradesh
1. ITC Ltd. e- Choupal for
Soybean & Wheat

Information on best
agricultural
practices Supply of
farm inputs Supply
of information on
weather forecasting
Price discovery of
commodities
Availability of quality
Soybean & Wheat at
reasonable prices to ITC Ltd.
for captive consumption

MP
2. Hindustan
Lever Ltd.
Wheat (Durum &
Sharbati wheat)
Supply of farm
inputs
Availability of quality wheat
at reasonable prices for
captive consumption
MP
3. Cargil India
Pvt. Ltd.
Wheat (Durum &
Sharbati wheat)
Supply of farm
inputs
captive consumption
MP
4. Rallies India
Pvt. Ltd.
Wheat (Durum &
Sharbati wheat)
Supply of farm
inputs
captive consumption
MP
5. Reliance
Bio-Sciences Ltd.
Aromatic oils (Lemon
grass, Palmarosa,
Citronella, Tulsi)
Purchase is
affected through
traders. No direct
benefit to farmers.
Availability of aromatic oils
for export purposes
MP
7. Punjab and Haryana
1. TATA
Chemicals

TATA Kisan Sansar
(TKS) through TATA
Krishi Vikas Kendra
(TKVK)

Enhanced farm
productivity &
income
i) achievement of leadership
by delivering value to
agriculture
ii) Social engineering through
community service
iii) Serving as a complete
solution provider to farmers
and building lasting
TKVK set up in
Sunam in Sangrur
district of Punjab
and proposed to
cover 2700 villages
in Punjab &
Haryana

relationship
iv) establishment of new
identity and enhanced brand
image
v) Increased sale of
companys products
(fertilizers, chemicals etc.)
leading to enhanced revenue
2. Vardhaman led
consortium of
spinning mills of
North India &
State Bank of
Patiala

Village cluster adoption
programme
i) Productivity of
cotton increased
from 4.6 quintals in
2002-03 to 9.6
quintals per acre.
ii) Expenditure
reduced from
Rs.7995 per acre in
2002-03 to Rs.
7112 in 2003-04.
Increased production &
hence better capacity
utilization of plants &
machinery.
Bathinda & Muktsar
districts of Punjab
8. West Bengal
M/s Fritoley India

Cultivation of
Processable Grade
potato (with low sugar
contents)

Farmers get all critical inputs
through the company at right
time in right quantity.
Further, they also get
technical know-how from the
company.
Company get assured supply
of the raw material, as the
key input supply is under
their regulation, the quality of
the raw materials are more
or less as per their
specification
Hooghly,
Bardhaman and
Medinipur (West) of
West Bengal State.
8. Maharashtra
Tata Chemicals
Ltd.

Grapes - Nashik district

i Assured quality of
grapes for export
and improving
brand name 'Tata
Grapes"
i Easy availability of crop
loan (Rs.55000 /acre).
ii Availability of technical
know-how and supply of
required inputs
iii. No marketing problem for
farmers.
Farmers are also resorting to
direst sale whenever local
processes are attractive.
i. Scheme
implemented
through SBI.

2. S. H. Kelkar
Group of
companies
Patchouli (Aromatic oil
plant)
i) Availability of
tissue culture
planting material
ii) Marketing facility
by the company
Availability of assured quality
raw material
Ratnagiri &
Sindhudurg districts

3. Champagne
India Limited
Production of grape
wine - Pune distrit
i Easy availability of
planting material
(@Rs.65-70 /.
Assured supply of quality
raw material
2500 acres of Wine
grapes under
contract
4. Venkate
shwara
Hatcheries
Private Ltd.
Contract Broiler
Farming in Maval Block
of Pune district
i. Technical inputs
and marketing of
product is assured.
ii. All recurring
expenditures are
borne by the
company
Assured availability of
marketable product.
The Company is saving on
the investment cost as well
as management cost
i) Being
implemented
through Pune
DCCB. ii) 120 units
of 5000 birds each
are envisaged

1.5 A win-win situation

Contract farming is extremely beneficial for companies involved in it, as they stand to gain by
way of stable and steady supplies, doing away with price risk fluctuations, noninvestment in
big resources like land, product risk-sharing, etc. Indeed with effective management, contract
farming can be a means to develop markets and bring about the transfer of technical skills in a
way that is profitable for both the companies and the farmers.

In terms of benefits for the farmers, the contractual agreements can provide them with access
to production services and credit as well as knowledge of new skills and technology. Some
contract farming ventures give farmers the opportunity to diversify into new crops and new
markets. Further, contract farming increases the yield of the particular farm. Due to the
agreement, the farmers are assured that the company will buy the produce and they will get
timely supply of quality seeds.

Thus, contract farming as a strategy adopted by food processors is gaining prominence in
India due to steady progress in the economy, rising food demand, organised retail boom and
an increasing shift towards branded food consumption.

1.6 Contract Farming Structures

STRUCTURE-
MODEL
SPONSORS GENERAL CHARACTERISTICS
Centralized Private corporate sector State
development agencies
Directed contract farming. Popular in many developing
countries for high-value crops. Commitment to provide
material and management inputs to farmers.
Nucleus estate State development agencies
Private/public plantations
Private corporate sector
Directed contract farming. Recommended for tree crops,
e.g. oil palm, where technical transfer through
demonstration is required. Popular for resettlement
schemes. Commitment to provide material and
management inputs to farmers.
Multipartite Sponsorship by various
organizations, e.g.
-State development agencies
-State marketing authorities
-Private corporate sector
- Landowners
- Farmer cooperatives
Common joint-venture approach. Unless excellent
coordination between sponsors,internal management
difficulties likely. Usually, contract commitment to provide
material and management inputs to farmers.
Informal developer Entrepreneurs
Small companies
Not usually directed farming. Common for short-term
crops; i.e. fresh vegetables to wholesalers or supermarkets.

Farmer cooperatives Normally minimal processing and few inputs to farmers.
Contracts on an informal registration or verbal basis.
Transitory in nature.
Intermediary
(tripartite)
Private corporate sector State
development agencies
Sponsors are usually from the private sector. Sponsor
control of material and technical inputs varies widely. At
time sponsors are unaware of the practice when illegally
carried out by large-scale farmers. Can have negative
consequences.


2. MEGA FOOD PARK

2.1 Salient Features of the Scheme

Holistic & cluster based approach - centralized facilities for key activities which are
technology and capital intensive

Specific focus on setting up backward linkages for establishing viable supply chains -
Provision for farm proximate aggregation & minimal processing infrastructure in the form of
collection centers and primary processing centers. The primary processing centers shall be
linked to central processing center and shall also have its own forward linkages to cater to
fresh retail market

Infrastructure needs of a viable Food park /Zone estimated to be about Rs 1200million
(US $ 30 million) including farm proximate primary processing facilities

2.1.1 Emphasis on Economic Viability

Enabling Infrastructure Creation along the supply chain
Creation of Central Processing Center, Primary Processing Centers and Farm Collection
Centers
Components of basic enabling infrastructure and common technical facilities to be assisted
under the scheme

Project to be implemented with private led initiative - through a Special Purpose Vehicle
(SPV) - SPV to be a Body Corporate registered under the Companies Act

2.1.2 Composition of SPV
at least three entrepreneurs / business units independent of each other with no common
directors
at least one should be from the food processing sector with at least 26%equity in the
Special Purpose Vehicle (SPVs) to bring in at least 20% of the project cost, including the
cost of land, as their contribution- 10% in case of hilly & Institute for Transportation and
Development Policy (ITDP) notified areas
Minimum Combined net worth of the shareholders in the SPV should be Rs. 500 million -
Food Processor should have at least Rs 100 million of net worth
Government agencies may participate in SPV holding less than 26% equity

2.1.3 Financial Assistance from Ministry
Limited to non-land component of the project
50% of project cost limited to Rs 500 million in general areas
75% of project cost limited to Rs 500 million in difficult & hilly areas and ITDP notified
areas

Program Management Agency (PMA) to assist the Ministry in implementation


Project Management Consultant (PMC) to assist SPV - in project development and
implementation

PMC to be appointed by SPV from empanelled list of MoFPI

2.1.4 Project Components

Core Processing Facilities
Collection Centre, Primary Processing Centers: Sorting and grading, packaging facilities ,
dry warehouses, specialized cold stores including pre-cooling chambers, ripening
chambers, reefer vans, mobile pre-coolers and collection vans
Central Processing Centers: Sorting and grading, Packaging unit, Dry warehouses,
Specialized storage facilities including Controlled Atmosphere (CA) Chambers, Variable
humidity stores, Pre-cooling chambers, Ripening chambers etc, Cold chain infrastructure,
Irradiation facilities, Steam generation & sterilization units, Food incubation-cum-
development centers etc.
At least 50% of the project cost (excluding land cost) shall be towards creation of above
mentioned facilities

2.1.5 Factory Buildings
Provision For MSEs Maximum 10% of total allotable area for setting up units

Enabling Basic Infrastructure
Roads, drainage, water supply, electricity supply ETP, logistics facilities, weighbridges etc

Non-core Infrastructure
Administrative buildings, training centers, canteen, workers hostel, trade/display center etc:
Cost of non-core infrastructure facilities, not exceeding 10% of the project cost, would be
eligible for grant purpose

Project Implementation Expense
Cost of hiring project management consultants (PMC) by SPV limited to 2% of eligible
grant amount.

2.2 Current Status of Mega Food Parks Scheme
Of 30 planned during 11th Five Year Plan, 10 Mega Food Parks have been taken in first
phase
Of 10 Parks, six have been approved by the Ministry and are currently under
implementation
Combined project cost of approved six parks are about Rs 6300Million
Includes Govt. assistance of Rs 3000 Million
Final Approval to three more Projects under Process
In addition, five new Projects have been announced



2.3 Budget Allocation for 2013-14
Rs. In Million
S. No Scheme/Sub Head Implementing
Agency
1 Infrastructure Development
Mega Food Park 1160.00
Cold Chain , Value Addition & Preservation Infrastructure 1000.00
Abattoir 310.00
2470.00
2 Technology Upgradation/ Establishment/ Modernisation of Food Processing
Industries (spillover)
1600.00
3 Quality Assurance, Codex Standards, R&D and other promotional activities 350.00
4 Human Resource Development (spillover) 40.00
5 (NMFP) Nation Mission on Food Processing 1870.00
6 (i) Strengthening of Institutions Grants in Aid (Revenue) 220.00
7 (ii) Grants in Aid for creation of Capital Assests (Revenue Section) 460.00
8 (iii) Economic Services (Revenue Section) 70.00
Total 7080.00



3. COLD STORAGE IN INDIA

3.1 Overview

India, at present does not have a comprehensive cold chain network, and is estimated to grow
to Rs 320 million by 2015.

There has been a phenomenal growth in production of horticulture produce, dairy products,
and meat products over the last decade. Owing to the tremendous pressure on improving
supply chain and reducing losses during produce handling and movement, the need for
creation of a cold chain network is crucial for perishable food commodities. Cold storage in
India has been largely adopted for long-term storage of potatoes, onions and high value crops
like apples, grapes and flowers. Potato cold storages used to contribute 88 per cent storage
capacity till 2000. However most of the new cold storages in the last decade have been
constructed as multipurpose facilities focusing on all fruits and vegetables, poultry, dairy and
FMCG product categories.

The Indian cold chain market is highly fragmented with more than 3,500 companies in the
whole value system.

Demand for Processed Food (In Rs Billion)

Cold storage solutions form about 85 per cent of the Indian cold chain market by value and
the balance 15 per cent is contributed by transportation. There are various standalone,
integrated companies and 3PL service providers offering cold storage and transportation
solutions to various food companies. However, these are not enough to cater to the growing
food demand.

1298.4
2716.8
4694.4
0
2000
4000
6000
2004 2010 2014
Diary
34%
+14%
52.8
307.2
585.6
0
500
1000
2004 2010 2014
Fruit & Vegetables
+27
%
25.8
158.4
518.4
0
200
400
600
2004 2010 2014
Snacks & Ready to Eat Food
+34
%
25.8
158.4
518.4
0
200
400
600
2004 2010 2014
Marine Products
+34
%

High growth prospects for the food processing sector along with attractive government
incentives (including 51 per cent FDI) make cold chain business a lucrative proposition for
foreign investors as well.

3.2 Current Scenario

The total market value of Indian cold chain industry is expected to reach Rs 64,000 crore by
end by 2017. During the period 2009-2017, the cold chain industry of India is expected to
register a magnificent CAGR of around 25.8 per cent, which will make the value of Indian
cold chain industry to reach at an astonishing figure of around Rs 640 billion by 2017. Indias
cold chain industry is still evolving, not well organized and operating below capacity. Most
equipment in use is outdated and single commodity based. According to government
estimates, India has 5,400 cold storage facilities, with a combined capacity of 23.66 million
metric tons that can store less than 11% of what is produced. The majority of cold storage
facilities are utilized for a single commodity, such as potatoes. Most of these facilities are
located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra, and West Bengal. The
following table shows distribution of facilities by commodity.

In addition, India has about 250 reefer transport operators (this includes independent firms)
that transport perishable products. Of the estimated 25,000 vehicles in use, 80% transport
dairy products (wet milk); only 5,000 refrigerated transport vehicles are available for all other
commodities. Indias greatest need is for an effective and economically viable cold chain
solution that will totally integrate the supply chains for all commodities from the production
centers to the consumption centers, thereby reducing physical waste and loss of value of
perishable commodities. For this reason, the Government of India has prioritized the
development of the cold chain industry. The government has laid out elaborate plans and
incentives to support large scale investments essential for developing an effective and
integrated cold chain infrastructure.

3.3 Companies in the cold storage sector

Spire and Apollo arent the only corporations
keen to exploit the potential that lies at the
back end of modern retail. A host of players,
big and small, are drawing up plans to set up
cold chain infrastructure. Other than the cold
chain, retail supply logistics, warehousing,
sourcing and merchandising management
all key to the success of a front-end retail
businessare areas where companies are
looking to invest. The bigger groups are
doing so by acquiring established players in
this sector. Over the past 18 months, two
majors names in the cold chain industry,
Snowman and Kausar, have been bought
over. Some time back, logistics player Gati
acquired Kausar India, even as transportation
& logistics major Gateway Distiparks

acquired a controlling stake in Snowman Frozen Foods.

Other companies betting on cold chain infrastructure include the state-owned Container
Corporation of India (Concor), and the Ahmedabad-based Adani Group, once a trading
house, now an infrastructure giant that also has cold chain logistics on its drawing board. The
existing players that are expanding capacities in a big way include R.K. Foodland, Refcon
Carriers, Indraprastha Cold Chain, Bulaki Deep Freeze, and Glacio Cold Chain.

The Future Group, meantime, has integrated backwardfrom food retailing to storage and
transportationwith the launch of Future Logistics. And like the Spire Group, there will be
other multinationals too who will be keen to get a slice of the Indian pie, what with 100 per
cent foreign direct investment being allowed in the cold chain sector.

For instance, GE Equipment Services is looking
at entering Indias cold chain logistics market,
especially cold storage and transportation
equipment. Malaysias Haisen has signed an
agreement with the Beta Empire Group and
Pace CFS for a possible joint venture to
establish cold chain logistics in India. The
Government to provide full excise duty
exemption on refrigerated equipment.

The billion-dollar investments announced by the likes of Reliance, Bharti, ITC, the Godrejs,
the Tatas, the Aditya Birla Group and the Future Group offer a ready market for third-party
cold chain logistics players. The cold chain industry itself is estimated to be as large as Rs 100-
150 billion, growing at 20-25 per cent and is expected to touch Rs 400 billion by 2015.

India has a total 5316 cold storages with a capacity of 23333694 MTs . India requires an
additional 9-10 million tonne of cold storage capacity to address annual post-harvest losses of
around Rs 1 trillion (US$18.6billion). Post-harvest losses of farm produce of fruits, vegetables
and other perishables, have been estimated to be over Rs 1 trillion per annum, 57 per cent of
which is due to avoidable wastage and the rest due to avoidable costs of storage and
commissions.

The Spire Groups joint venture with Apollo, called Apollo Everest Kool Solutions (Spire has
a North American subsidiary called Everest Cold Storage), has plans to set up at least 15
temperature-controlled warehouses in India starting 2008. The Spire Group will attempt to
bring into the country international quality standards in storing food items.

Private equity players, Indian as well as foreign, have shown keen interest to invest in cold
chain companies more so after witnessing the boom in the retail sector. Global and local
financial services firms like Edelweiss, IDFC, Goldman Sachs, Macquarie and Blackstone are
on the look-out for the right investment candidate.


3.4 Key Suppliers

The following is a partial list of companies currently supplying cold chain
technology/equipment/services in India: Ingersoll Rand (USA); Rinac; Walco Engineering;
Frick India; Carrier; Bluestar; Lamilux; Dupont; Emerson Climate Technologies; Parker
Hannifin; Snowman; R.K. Foodlands; Schaefer Systems International Pvt. Ltd.; Metaflex
Doors India Pvt. Ltd.; Alfa Laval (India) Limited; Tolsma Storage Technology, Snowman
Frozen Foods; Fresh and Healthy Enterprises, and Apollo-Everest Cool Solutions

3.5 Cold chain industry in India on a hot growth trail

3.5.1 The Integrated Cold Chain Scheme

India since medieval era, has lured the world to its rich horticulture delights, the aroma of
myriad spices, and the palate of delectable flavours. In fact, its traditional Indian cuisines have
been attributed to fruits, vegetable and condiments of the fertile Indian soil.

While India has such a rich tradition in terms of spices, flavours and cuisines, the food &
beverage sector in the country is mired by inherent problems such as lack of adequate storage
infrastructure and other facilities to meet the gigantic needs of its vast populace.

In fact, if one takes a look at the lack of adequate storage infrastructure for fruits and
vegetables in the country, it pinpoints at wastage and value loss of approximately Rs 330
billion every year. Investment in cold storage projects is now gaining momentum. During this
year, 24 cold storage projects with a capacity of 1.4 lakh metric tonnes have been sanctioned
under National Horticulture Mission. In addition, 107 cold storage projects with a capacity of
over 5 lakh metric tonnes have been approved by the National Horticulture Board.

It is for the faster growth of the cold chain industry that the Ministry of Food Processing
Industry (MoFPI) has announced an Integrated Cold Chain Scheme. The integrated cold chain
will enable excellent infrastructure facilities for cold chain, value addition and the preservation
industry along the supply chain from the farm to market by employing a cluster-based
approach. To do this, the government has offered a 50% subsidy of up to Rs 100 million for
project development. Individuals or groups of entrepreneurs with business interests in cold
chain, supply chain, warehousing and logistics can benefit from this.

3.5.2 Eligible project components

The scheme will consist of any two of the following components A or B:

Minimal processing centre at the farm level with facilities for weighing, sorting, grading
waxing, packing, pre-cooling, CA/ Modified Atmosphere (MA) cold storage, normal
)storage and Individual Quick Freezing (IQF)
Mobile pre-cooling vans and reefer trucks
Distribution hubs with CA / MA chambers / cold storage / variable humidity chambers,
packing facility, Cleaning in Place (CIP) fog treatment, IQF and blast freezing
Or


Irradiation facility (Considering the functional nature of the facility, irradiation facility can
be treated as a stand-alone component for the purpose of availing the grant)

3.5.3 Pattern of Assistance

The subsidy on offer is 50% of the total cost of plant, machinery and technical civil works in
general areas and 75% in the northeastern region including Sikkim, J&K, Himachal Pradesh
and Uttarakhand and difficult areas. However, it is subject to a maximum of Rs 100 million.
The grant will be released in 3 installments in the ratio of 25:50:25.

3.5.4 Eligibility Criteria

Participants will have to fulfill the following criteria:
The applicant should be an individual or group of entrepreneurs with interest in setting up
of an integrated cold chain
The applicant should have a proven track record in food processing, value chain and cold
chain logistic management
The promoter must have a net-worth of 1.5 times the grant amount
The implementation schedule for the project would be about 18 months from the date of
the approval of each project

3.6 Progress of Cold Chain for Horticulture

6 companies have set up CA stores in India for apples
Total capacity at present is approx.40,000 MT
Some have been buying apples, storing in CA and selling in off-season for the last 4 years
and this has tremendously benefited the farmers and customers
Progress in productivity and quality of produce
Substantial capacity built up for ripening bananas

3.7 Some Trends

Quality fruit is in demand round the year
India imported more than 1,25,000 MT of apples in 2009-10
Price of imported apple is almost 3 times that of Indian apples in the season, yet the
imports are growing @30%+ every year.
India is also importing large quantities of grapes, kiwis, pears, etc.

3.8 Prospects

Indias food industry, which is currently estimated to be at approximately USD 100 billion will
grow to USD 300 billion by 2015. Value addition of food products is expected to increase

from 8 percent to 35 percent and that of fruits and vegetable processing from the current 2
percent to 25 percent by the end of 2025. The survey further reports that the dairy sector,
which currently comprises the highest share of the processed food market, will experience
marked growth

3.9 Challenges

Limited expertise available in the country in orchard care and post-harvest management
Protocols need to be established for every commodity and variety
At all stages, manpower involved in logistics and marketing is not fully aware of produce
requirements, leading to loss in quality and value
Rural infrastructure is very poor, affecting transport

One of the most critical constraints in the growth of the food processing industry in India is
the lack of integrated cold chain facilities. According to the governments estimates India has
5,400 cold storage facilities of which 4,875 are in the private sector, 400 in the cooperative
sector and 125 in the public sector. Although the combined capacity of the cold storage
facilities is 23.66 million metric tons, India can store less than 11% of what is produced. Most
of the infrastructure used in the cold chain sector is outdated technology and is single
commodity based. Many are designed for storing potatoes. Industry experts believe that
controlled atmosphere storage facilities and other cold storage facilities with the technology
for storing and handling different types of fruits and vegetables at variant temperatures would
have a very good potential market in India.

Another major constraint is the lack of refrigerated vehicles for movement of perishables
produce (with the exception of milk). According to industry estimates, approximately 104
million metric tons of perishable produce is transported between cities each year. Of this
figure, about 100 million metric tons moves via non reefer mode and only four million metric
tons is transported by reefer. Although there are currently more than 25,000 vehicles and 250
operators involved in refrigerated transport, 80% of this capacity is dedicated to transporting
milk. When compared with world standards for cargo movement through cold chain, India is
still far behind. The percentage of movement of fruits and vegetables through cold chain in
U.S. is around 80 to 85 percent, Thailand is 30 to 40 percent and India is negligible. Currently,
most of the refrigerated transport in India is operated by small, non integrated firms that do
not make use of stateoftheart technology or management practices. Therefore, India offers
market potential for cold chain logistic solution providers, including refrigerated transport
services

3.10 Winds of Change

Thanks to entry of imported good quality fruits, the sector seen as a good business
opportunity
40,000 MT of CA Storage capacity established in the last 4 years
Demand of reefer transport has increased manifold. This is now a major constraint


3.11 The Way Forward

Organized players have started entering this sector.
The organized players should make a difference in the next 1-2 years and then the sector
should see major investments
Expect substantial improvement in quality, productivity and reduced losses in Fresh
Produce supply chain
Perhaps a mix of co-operative and corporate model should work best for this sector
Role of Subsidies may have to be studied for effective growth.

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